The Obama administration scored a victory when the U.S. Court of Appeals in Houston dismissed an appeal (PDF) from the Physician Hospitals of America and the Tyler, Texas-based Texas Spine & Joint Hospital challenging a healthcare reform law restriction on expansion by physician-owned hospitals.

The appeals court ruled that the district court lacked subject-matter jurisdiction in the case.

PHA, a trade association, and 20-bed Texas Spine & Joint Hospital sought to strike down Section 6001 of the healthcare reform law, which limits the ability of physician-owned hospitals to expand existing facilities or add new ones.

Texas Spine & Joint was in the midst of a $37 million expansion when the Patient Protection and Affordable Care Act passed in 2010. The hospital was unable to complete the project before the law's cutoff date.

The hospital argued that it was incurring losses because if it finished the project, it ran the risk of stiff penalties and millions in lost revenue from a completed but empty facility.

“We're disappointed that the court has ruled that the jurisdictional rules don't allow a doc-owned hospital to contest the constitutionality of a law until they build a $28 million hospital, treat a patient and send a claim,” said Scott Oostdyk, a partner at Richmond, Va.-based McGuireWoods and lead counsel for PHA and Texas Spine & Joint, referring to the estimated remaining costs needed to complete the facility.

Oostdyk said the two plaintiffs were still considering their options, including a possible appeal to the U.S. Supreme Court.